The chancellor's response to the refugee crisis was going to be her downfall. Then Germany's welfare state kicked in.

By James Traub

Two years ago, German Chancellor Angela Merkel uttered the most resonant, but also the most widely ridiculed, judgment on the refugee crisis just then arriving at the borders of Europe: “wir schaffen das” — “we can do it.” A year later, after staggering numbers of Syrians — and then Iraqis and Afghans and Eritreans and Moroccans — had poured into Germany, and as the country’s fine-tuned bureaucratic machine buckled and at times broke down under the strain, and as refugees were implicated in sexual assaults and terrorist attacks, Merkel felt called upon to concede that “this phrase was a little overstated.” Or perhaps not a little: When I was in Dresden last December, I heard dire predictions that a xenophobic, nationalist party — Alternative for Germany (AfD) — would rise from obscurity to become Germany’s main opposition party, just as was happening in France, Austria, and elsewhere.I have just returned from another trip to Dresden. And I have concluded that Merkel was, in fact, right the first time around — Germany can do it. And by “it” I mean both that it can weather the blow to its politics and that it can absorb a million-odd refugees, most of them ill-educated and poor. The damage that this Category 4 hurricane has left behind is very real. On Sept. 24, when Germany holds its national elections, AfD is projected to win a quarter of the vote in Saxony, the state of which Dresden is capital. The split between a progressive west and a traditionalist and resentful east will deepen. But Merkel is likely to win the election by double digits. As for the problem of “integration,” conversations with the refugees I first met a year ago have shown me how utterly dependent many of them are, and will remain, on German largesse. But Germany has a lot of largesse, and a lot of patience.Merkel’s “das,” consciously or not, encompassed something yet deeper than the absorption of people fleeing the hell of Syria’s war. What has been at stake since the summer of 2015 is Europe’s capacity to honor the values upon which it was built without provoking a political backlash that would put precisely those values in jeopardy. I happened to be at a conference in Salzburg on Labor Day weekend, 2015, when refugees suddenly began filling the trains across Austria and into Germany. Austria was about to hold an election for president, and Norbert Hofer of the far-right Freedom Party of Austria was gaining in the polls every day. As we debated what to say about the refugees, Yoram Dinstein, a distinguished Israeli scholar of international law, said, “If the price of taking the refugees is bringing fascists to power, I hope they turn the refugees back.”That thought has haunted me for the last two years. The fear that Dinstein was right helps explain why I have devoted much of that time to reporting on the refugee crisis and why I am now writing a book about the history and prospects of liberalism. Only two countries, Germany and Sweden, took their moral obligations seriously enough to accept the political risk of throwing open their doors to refugees. Both lived to rue their impulsive generosity and to block new avenues of arrival. Even in countries that essentially turned their back on the refugees, above all the United States and the United Kingdom, fear of refugees, of Muslims, of immigrants, of terrorism tipped elections to the nationalists. The risks have been — and remain — very real.Yet Europe is not today in the place people feared two years ago. This spring, France elected as president Emmanuel Macron, the most vocally pro-refugee of the major candidates, while Holland turned away from the Muslim-hating Geert Wilders. Those elections still had a very sharp existential edge. Not in Germany: Angela Merkel has presided over a consummately boring, pedestrian campaign. And that is the most ringing answer to Yoram Dinstein’s nightmare.

People arrive at the registration office for refugees and migrants seeking asylum in Germany, on March 11, 2015 in Berlin. (Sean Gallup/Getty Images)

A legal triage necessarily underlies the moral question of according refugee status. Germany could not simply accept the bona fides of the 890,000 people who reached the country in 2015. Like other European nations, Germany chose to extend automatic protection to all Syrians (as well as to virtually all Eritreans). Classic “economic” migrants from peaceful, if often miserable, countries like Kosovo, Pakistan, and Morocco were rejected virtually out of hand. In between were vast numbers of aspirants from Iraq and Afghanistan and several other countries deemed neither wholly safe nor wholly dangerous. Their status was determined on a case-by-case basis. Over time, as Germany tried to reduce the total number of people upon whom it would lavish its program of social support, fewer and fewer Afghans and Iraqis made it through the refugee turnstile.This process was often cruel, and in any case random. Of the half-dozen Iraqis whom I met last year outside the dismal converted Days Inn in which they had been placed, only two, I learned on this visit, had received asylum. One of them, Hussein Hamzi Karim, was a Shiite from Baghdad, a policeman who said that he had been targeted by the Jaish al-Mahdi, a Shiite death squad. That was an extremely odd story, and the fact that Karim had only a sixth-grade education meant that he was unlikely to have been a policeman and perhaps was actually a rival militia member — but the interviewer had believed him. Back in the Days Inn, Karim had been a grim, furious figure who said that he planned to throw himself under a bus to expose Germany’s mercilessness. Now, sitting in his sunny one-room apartment decorated with cut-out flowers and butterflies he had made himself, Karim said, “I go to work” — washing dishes in a restaurant — “and I’m laughing.” He had, unexpectedly and perhaps even unjustly, won the refugee lottery.Yet even the triage was something of a sham, for few of the rejected actually went home. Karim’s old friends were still living at the Days Inn (or at least they were when, he said, he cut off contact with them a few months ago). One of them had gone home and gotten killed, and after that there was no further talk among them of return. Regardless, even if they did want to return, the decision would not be entirely theirs. The embassies of Germany’s 250,000 rejected asylum-seekers are supposed to issue documents that would allow them to return home. But since Morocco, to take one prominent example, doesn’t want its migrants back, and they themselves don’t want to return, the documents very rarely materialize.The rejected, in any case, can find alternative means of legal protection in Germany. On my first trip to Dresden I had attended a language class full of Afghans, one of whom, Habibullah Muradi, spoke some English. As a Hazara, and thus a Shiite, Muradi was subject to persecution from rival groups in his home near Baghlan and in grave danger from the Taliban, which were now, he said, 10 or so miles from his family home. When I found Muradi earlier this month, he told me that the translator at his asylum interview had given him a “90 to 95 percent” chance of being accepted. I would have said the same. But he had been rejected. Nevertheless, this shy and delicate 21-year-old who had been dispatched by his parents from an Afghan village was now enrolled in a job-training program alongside German men and women.Muradi was smart; he had graduated from high school in Afghanistan and taught himself English. In Dresden he was one of only two of the 19 students in his class who had passed the very basic German language exam. Despite the rejection of his asylum application, this had somehow made him eligible to join a company that cleaned office buildings and to be enrolled in a three-year apprenticeship, followed by two years of work. Germany offers apprenticeships in almost everything, but not, at least until recently, cleaning. Kristian Garthus-Niegel, a social anthropologist who works at the Saxony Refugee Council, a private organization that helps refugees, explained that cleaning firms had apparently figured out that they could get subsidized labor if they created vocational programs and offered them to refugees. Muradi was looking forward to learning about the chemical properties of cleaning agents. He was earning only 620 euros — less than $750 — a month, but it was a major improvement on life in Baghlan.The vast population of rejected-but-not-deported immigrants, few of them with Muradi’s academic skills, could well form an urban underclass with neither jobs nor state support. Nevertheless, the reason why it is imaginable, if just barely, that Germany will succeed in the daunting task of integration is that the entire economy is organized as a conveyer belt toward employment. The refugees constitute a kind of stress test of that system. According to figures compiled by the Jobs Center, the social service agency that has been assigned to work with refugees, about 40 percent of adult refugees in Dresden have a ninth-grade education or less. And as Jan Pratzka, head of the Jobs Center in Dresden, pointed out to me, the ninth grade in Eritrea might equal the fourth grade in Germany.What’s more, the refugees arrive without a word of German. Pratzka estimates that the minimal threshold for enrolling in the kind of vocational program that leads to a decent job is a ninth- or tenth-grade education as well as conversational proficiency in German. Otherwise, he said, “you can work in a hotel or a restaurant.” One of the open questions about the German economy is just how many unskilled jobs there are in the service sector. Pratzka said that, based on past experience with immigrants, he thinks no more than half will be working after five years. That may be generous: Two years after arriving, only 9 percent of refugees have full-time jobs.That sounds like a failure, but a country that spent hundreds of billions of dollars absorbing East Germany may not blink at the welfare costs of the refugees. I was always amazed to hear refugees talk about the Jobs Center, which seemed to offer everything and ask very little. My Arabic translator, Wissam al-Fakher, a Syrian who had himself wrangled university admission and thus had not even needed refugee status, told me that the refugees he worked with liked to say, “The Jobs Center is better than my mom.” I went there one day when Fakher was helping his friend Fatteh, a barber from Damascus. Fatteh had been summoned to the Jobs Center because he had missed a few language classes. He was complaining bitterly that he, a debonair 36-year-old who wore a fine scarf at his throat and had been cutting hair for years, was being obliged to attend not only language class but also barber class before being permitted to practice his trade. It was an insult to his professionalism. But the really remarkable thing was that when Fatteh sat down with his counselor, she didn’t want to threaten him for missing class. She was worried. Was everything okay? Could she help? Perhaps the most amazing thing of all, as al-Fakher observed, was that the Jobs Center had known that Fatteh had skipped a few language classes. It really was the German mother.The Jobs Center serves as the routing network for a system that regards not working as a temporary and remediable phase of working. In every German city, the municipal Jobs Center is paired with the Federal Employment Agency, which ministers to the recently jobless. The long-term unemployed are referred to the Jobs Center, where they continue to receive benefits in exchange for seeking work or training. Pratzka told me that 80 percent of the people who come to the Jobs Center are German, 10 percent are from other European countries, and 10 percent are refugees. The refugees are thus treated as Germans with no prior work history. They get the same benefits as Germans — 400 euros a month for an individual, plus rental. They, too, sign a contract promising to do this and that in exchange for those benefits. But the path they promise to follow is much slower.The Jobs Center urges refugees to continue language classes, even at the expense of work, until they reach proficiency, with the definition of proficiency depending on the kind of job being sought. Refugees like Karim who go straight to a job without learning German will be stuck washing dishes forever. This is not as big of a problem as refugees who are content to drift along in a state of dependency, though it is one that very much worries Pratzka. Next year, he says, when the average refugee should be further along in language class, the contracts will demand part-time work and part-time class from all beneficiaries. Until now, it has been almost impossible to fall afoul of the system; only 3 percent of refugees have seen their benefits cut for noncompliance. That number, Pratzka says, is bound to rise.

Abdulhadi Barnjakji, a refugee from Damascus, Syria, solders pieces of scrap metal as he attends a workshop at Biotec, a local association that provides activities for refugees and socially disadvantaged locals just outside of Dresden on September 29, 2016. (JOHN MACDOUGALL/AFP/Getty Images)

My acid test for Germany’s welfare-to-work system was the Malak family, whom I met my first time in Dresden and interviewed again earlier this month. Jamail al-Malak and his wife Mirvet fled Aleppo with their daughter and two sons in 2012 when their home was flattened by a missile — fired by which side, they never knew. After bouncing from one friend or relative to another, they left for Turkey. Years of labor at his metal shop, as well as the ordeal of fleeing, had so damaged Jamail’s back that he could no longer work. He was tormented by the fact that the boys, Mustapha and Muhammad, then 17 and 16, had had to support the family with manual labor — “7 in the morning until 11 at night,” he said. In August 2015, the Malaks joined the great westward trek of refugees, arriving in Dresden on Sept. 1.By the time we met, they had been placed in a tidy apartment in the city’s Soviet-era housing blocks. Jamail, at 46, seemed utterly played out. His eyes were outlined with gray rings, his jowls hung slackly. He recounted even the most terrible parts of his ordeal in a low, flat tone. Jamail had no thought of his own future. “I have this place,” he said to me. “That’s enough. It’s just my family I care about.” Muhammad, who spoke in monosyllables, seemed as listless as his father. He and Mustapha had dropped out of school to help their father in seventh and sixth grades. Muhammad dreamed of working in a sweets shop, but that would be impossible until he learned German. Only bright-eyed Fatin, in fifth grade with no memories of Syria and already speaking German, seemed to offer hope for the Malaks’ future.This time around, the Malaks were very hard to track down. They had moved, and Jamail didn’t return phone calls and text messages from Fakher. I worried that something terrible had happened. We finally found his new address, but when we buzzed, he said that he couldn’t have us in — he and Mirvet had been sick. Finally, though, he popped his head out the window and told us to come up. They really had been sick — he with high blood pressure and Mirvet with crippling migraines that had kept her in a hospital for two weeks — but Jamail was also embarrassed. He had not climbed the integration ladder. He had spent only four days in language class, and Mirvet had to drop out after a few months. Jamail said that his doctor had told him to take regular walks, but his back hurt too much. He wanted nothing to do with Syrian politics — he didn’t care who won the war, so long as he could go back home — so he avoided the Aleppans in town and refused even to go to the mosque. In short, he never did anything or went anywhere. He was plainly depressed. He asked me to tell him the news about Syria, and then waved me off. “This pains my heart too much. Let’s talk about something else.”Mirvet told me that her family had been sufficiently well known in the opposition that when the shabiha — President Bashar al-Assad’s thuggish militia — had taken the eastern, rebel-held side of Aleppo, they had dynamited the family’s abandoned homes. She did not share her husband’s dreams of return. Neither, however, did she have any sense of her own future. Since Jamail tended to answer every question I put to Mirvet, I waited until he walked out of the room to ask if she planned to look for work. She giggled. “In Syria,” she said, “it’s not normal for us women to work. I know in Germany it’s normal, but I can’t imagine doing that myself.” Jamail was old enough that he was exempt from the work requirement; he would be supported by the state for the rest of his life. Mirvet would be required to work. She had signed a contract with the Jobs Center, but the German document, which Jamail brought out for Fakher to interpret for him, only required that she show up every six months to report on her progress.The family’s future — and thus the drama of integration — lay with the children. Fakher and I returned that evening to see them. Fatin, dark-haired, dark-eyed, smiling, restless, said that the German girls in sixth grade were mean to her. One girl had stolen her cellphone. But the family had a guardian angel, a German volunteer who often visited with her own children and helped Fatin with homework. She had gone to the school and settled the affair. In fact, the Malaks had three guardian angels. An Arab-speaking social worker at the Saxony Refugee Council had worked with them until moving to a new job and had in turn introduced them to both this German lady and another, who had helped Mustapha find an apartment in a very nice neighborhood when the Jobs Center had insisted that, at 21, he needed a place of his own. (The Jobs Center paid, of course.)Refugees in Dresden all seem to have such teams of volunteer ladies at their disposal. Church attendance has dropped sharply in eastern Germany, but the diminishing band of the faithful seem deeply invested in social activism. I would see them, middle-aged ladies in graying ponytails, sitting with refugees at the impromptu cafes in town, poring over official documents. They often brought homemade cake and bread. The volunteer army vastly outnumbered the right-wing cranks who turned out to protest the newcomers. It was one of the reasons the refugees had a shot at success.Muhammad, alas, seemed as lumpish as he had the year before. He and Mustapha had both failed their German exam at the basic, B1 level. Both continued to receive their subsidies from the Jobs Center, which had assigned them to plant flowers by the roadside in exchange for tram fare — about as low as you could go without falling off integration’s transmission belt altogether. Muhammad complained that even his friends who had passed B1 couldn’t get a job; there was nothing to be had. The truth was that basic German was still too basic: decent jobs required more language proficiency. The Jobs Center wanted the boys to go back to school. But the idea of human capital was alien to the Malaks. Jamail, who was ashamed of his family’s dependence on the Jobs Center, was urging the boys to get any job they could. Mustapha, who was at least more talkative than Muhammad, had actually snagged a two-week internship at a metalworking shop. Afterward, the boss had said he would call if something opened up; he hadn’t yet.Muhammad and Mustapha seemed destined for a life of washing dishes — at best. They would drift to the margins of German life. Yet something happened that gave me a tiny glimmer of hope. The day after I saw the Malaks, I went to Heidenau, a suburb southeast of Dresden, to visit a vocational education program, the very heart of the German employment system. The program was operated by a private firm that offered classroom education to employees of the small machine shops that dot Saxony. The owner, Norbert Rokasky, had decided that he wanted to extend his program to include refugees. When he discovered that very few refugees had the language skills to take classes in German, he hired another firm to offer language classes. When the students had reached B2, he would help them find jobs and then offer vocational training. Even now he let the students go to one of workshops on the campus and bang metal, just to get the feel of the thing. The average refugee, he told me, was less qualified but more motivated and hardworking than his German students. I mentioned Mustapha. Would he be qualified to enroll? Of course, Rokasky said, the firm that offered the internship should have sent Mustapha to him. He gave me his card and said that he would expect a call. Refugees might slide between the cracks, but Germany was trying hard to catch them.It’s an extraordinary system that enfolds refugees in Germany — one part voluntarism, two parts private sector, and everything else, the benevolent welfare state. Such a system raises a question about liberalism. The United States has a liberal economy in the classical sense of minimal state intervention. The American system creates an abundance of low-level and informal job opportunities. It does not, however, have a means of systematically equipping the ill equipped for the job market. Germany has had an armor-plated labor market with social protections since the time of Bismarck, and very little informal economy. Yet the massive system of benefits, and the structured conveyor belt to employment, seems to allow it to contain the social problems associated with the mass arrival of refugees — problems that would swamp a free-market economy. And by containing the social problem, Germany has been able to contain the political problem. Put otherwise, Germany’s illiberal economy has served as a foundation for liberal politics. One could argue that the situation in the United States is the exact opposite.

Supporters of the anti-immigrant Pegida movement demonstrate in Dresden, in October 2016. (OLIVER KILLIG/AFP/Getty Images)

Every Monday evening at 6:30, supporters of Pegida, the far-right, overtly xenophobic and anti-Islam movement whose name stands for “Patriotic Europeans Against the Islamisation of the West,” which was founded in Dresden in 2014, gather in a great open plaza beneath the Frauenkirche, the ancient, rebuilt church that symbolizes Dresden’s glorious history as well as its persistence in the face of wartime destruction. In early 2015, the crowd for the weekly “stroll” around old Dresden peaked at 25,000. The fact that this was well before the refugee crisis began shows that resentment toward political elites and toward outsiders of all kinds was already intense before the arrival of the newcomers. The stroll I attended earlier this month probably attracted less than a 10th of that figure. Now long since routinized, the gathering attracts tourists with iPhones, cops with little to do, and protestors blowing whistles to drown out the speeches denouncing Islam and Merkel’s Christian Democratic Union. Skinheads once imparted a genuinely ominous edge to the affair, but now the stroll mostly attracts old people. Everyone I approached was perfectly polite, delighted to talk, and quite willing to give me their full name. The sulfurous rhetoric at Pegida rallies has been blamed for provoking attacks on refugees, but the rank-and-file members seem less belligerent than the American alt-right. (Germany also has violent neo-Nazi groups to the right even of Pegida.)I walked up to an older man waving a big black flag that read, in English, “Islam Not Welcome: Stay Back or We’ll Kick You Back.” Wolfram Materne worked in his son’s butcher shop in nearby Leipzig. His son had benefited from state subsidies by hiring a Pakistani and an Afghan, both of whom, Materne said, worked hard and even agreed to handle pork. But Materne had an apocalyptic vision of Islam. He had read an old book that prophesied global Islamic conquest. “Christianity was born in the Orient,” he said, “but then the Muslims expelled the Christians. The same thing is happening in Africa, with Boko Haram. And now it’s Europe’s turn.” Materne wanted me to know that he was no Nazi and would be happy to accept one thousand or so Syrians, but he thought Merkel had brought Germany to the brink of ruin by accepting a million.I met very few people who had had bad personal experiences of Islam, but I met many people with theories about it. Olaf Neumann, an engineer who spoke English, told me that he had seen a YouTube documentary proving that the war in Syria had ended three years ago. Only 905 of the alleged refuges who came in 2015 deserved protection. “The other 2 million should be sent back,” he said. Everyone I talked to planned to vote AfD, and no one believed the polls predicting that the party would capture only about 9 percent of the vote. “That,” said Neumann, “is the lügenpresse”—the lying press, Germany’s version of “fake news.”The group’s ranks have thinned considerably. What’s more, according to figures compiled by RAA Saxony, a refugee advocacy group, violent acts against refugees in Saxony have dropped from 297 in 2016 to 84 in the first eight months of 2017 (though that figure will probably be revised upwards). National figures also show a downward trend. Germany’s temperature has plainly dropped a few degrees. Nevertheless, passive support for far-right views remains strong, at least in the east, which, like almost everywhere else in the former Soviet bloc, had virtually no contact with nonwhite, non-Christian people for several generations. In Saxony’s most recent provincial elections in 2014, the AfD was not yet a force, but the National Democratic Party of Germany, a neo-Nazi party that the national legislature has tried to ban, won a shocking 5 percent of the vote.Every local politician I met told me about the ranks of the far-right in his or her constituency. The AfD counts as relatively respectable. Sebastian Fischer, a young and worldly former chef who belongs to Merkel’s CDU and represents a well-to-do rural district north of Dresden in the Saxon parliament, told me last year that both he and most of his voters felt far more comfortable with the AfD’s views of immigration and identity than with Merkel’s, though he bridled at some of the “ugly” things the members said on Twitter. Fischer considered Merkel’s embrace of the refugees a disastrous mistake based on a sense of misplaced wartime guilt. “These are opinions that are confined to the past,” he said, “and they will not survive in the future.”The fact that Merkel is apparently about to handily win the election, and that the AfD has lost so much altitude over the past year, supports the argument that these are not, in fact, opinions confined to the past or to a guilt-ridden older generation. Yet it would be naive to deny the depth of worry — and of frustration, and often of anger — that Germans feel about the newcomers. Stephan Grünewald, a psychologist who writes about German national character, recently interviewed 50 representative voters. When asked what question most preoccupied them, Grünewald told Der Spiegel, “all people wanted to talk about was the refugee crisis, refugee crisis, refugee crisis.”Refugees are an emotional, cultural, and economic issue in Germany. Yet they are not, strangely enough, a political issue. The immigration rate came in 17th in one list of voters’ concerns, far behind education, poverty among the aged, and crime. When I raised this paradox with Octavian Ursu, a member of the CDU in the Saxon parliament, he said, first, “The economic situation in Germany is very good,” thus blunting, at least for the moment, the fear of a zero-sum competition for jobs. Second, he said, “the social situation is very good” — that is, voters have little reason to feel that their benefits are being sacrificed to pay for refugee care. Third, the unholy trinity of U.S. President Donald Trump, Russian President Vladimir Putin, and Turkish President Recep Tayyip Erdogan has terrified voters about the consequences of giving way to populist nationalism. “We’re lucky the election was not one or two years ago,” Ursu said — before Trump and Brexit.What Ursu did not include, but which clearly plays a very important role, is the litany of harsh measures Merkel promoted to reassure voters that she gets their concerns, including the deal with Turkey to choke off the flow of refugees, the limits on family reunification, and the tightening of eligibility for asylum. Those measures are not easy to square with Merkel’s unstinting moral commitment of 2015. But they have neutralized the right while offering very little traction to critics on the left.Perhaps because I come from a country whose record on the refugees is utterly shameful, I have trouble working up a good head of outrage at Merkel’s politically convenient second thoughts. Martin Schulz, her Social Democratic challenger for chancellor, criticized her in their sole debate for failing to work with her European partners to prepare in advance for a refugee flood of which they had been warned. Had they done so, they might have been able to avoid the nightmare scenes of refugees drowned in the Mediterranean, as well as the cynical recourse of Turkey as a bottomless sink of refugees. (See my earlier piece on just this question) But once they failed, Merkel and her fellow heads of state had to find a way to stem the flow of refugees. If they hadn’t shown their publics that they were re-asserting control over national borders, the nationalist wave would not have peaked last year. It would be in flood tide today. Yoram Dinstein’s nightmare scenario would have been much closer to realization.

Syrian refugees offer flowers to German Chancellor Angela Merkel on September 19. (ODD ANDERSEN/AFP/Getty Images)Germany, and Europe, have bought themselves time, albeit at the expense of the refugees. This is, at least politically speaking, no small achievement. But they need not look beyond the horizon to see the dangers that still loom. At any moment, President Erdogan could decide that he has lost patience with European criticism of his increasingly autocratic rule and open up the spigot of immigration. Even if the refugees ultimately settle down in Turkey, or even begin to return to Syria — an increasingly plausible outcome as Assad and his allies crush the rebellion and flush out the Islamic State — the flow of desperate people from Africa to Europe will almost certainly continue.As of this writing, 100,000 immigrants had crossed illegally from Africa to Italy in 2017, with 28,000 more reaching Spain and Greece. In recent months, Italian officials have choked off the flow by working with — and allegedly paying off — Libyan militias. As partners go, bought-and-paid-for militias offer a good deal less long-term security than a Turkish autocrat. European countries and the European Union have vowed to address the situation by increasing development assistance to countries that export immigrants, which will have no effect on the numbers for a generation, if then, and by working with those countries to tighten border enforcement, which may prove more effective. That could involve some very unpleasant scenes and in any case hardly constitutes a long-term solution.Europe suffers from geographical misfortune. While the United States sits atop 440 million increasingly middle-class Central and South Americans, Europe’s wealth glitters before 1.2 billion Africans, the overwhelming majority of them poor. Europe’s immigration problem is also an Islam problem, since, again unlike in the United States, most of the newcomers will be Muslims. The continent plainly needs a collective immigration policy. But it doesn’t have one, any more than it had a collective refugee policy, despite pleas by experts to formulate one in the years before the refugees began arriving in Greece.Democracies are not very good at responding to problems before they become crises. But Europe has just had its 100-year flood. There really is no excuse for failing to prevent a recurrence of the calamitous suffering of the refugees, and the frightened and resentful reaction of voting publics. Europe needs immigrants to work in its factories — but only just so many. It can absorb more Muslims — but only just so many, at least without setting off a backlash. Samuel Huntington may have been hyperbolic in forecasting a coming “clash of civilizations” between the Christian West and Islam, but there’s too much evidence on his side to make one wish for a giant real-life experiment.Angela Merkel can’t dictate policy in Europe — at least not on immigration. But Germany is today the motor of the EU. Europe cannot accomplish anything big without Germany at the heart of the effort. This year, with the election looming, the chancellor has had to concentrate on the home front. After Sept. 24, she can turn back to the wider world. In what one assumes will be her last term in office, Merkel will need to show that not only Germany, but also Europe, can do it.Top photo credit: STR/AFP/Getty Images

Donald Trump has created dangerous confusion over US policy towards Pyongyang

by: Gideon Rachman

The great wars of the 20th century were often preceded by a catastrophic miscalculation. The Germans failed to anticipate that Britain would fight over Belgium in 1914. Stalin failed to anticipate Hitler’s invasion of Russia. Japan and America repeatedly misunderstood each other’s motives and reactions in the run-up to Pearl Harbor. In 1950, the US failed to anticipate that China would enter the Korean war.A similar threat — that miscalculation could lead to war — hangs over the Korean peninsula today. The two key leaders, Kim Jong Un of North Korea and Donald Trump of the US, are unpredictable. The dangers that they will miscalculate each other’s actions, with catastrophic consequences, are real.North Korea is such a closed society that even academic specialists struggle to interpret its behaviour. The mainstream view is that Mr Kim’s pursuit of advanced nuclear weapons is motivated by a search for security. The North Korean leader has seen what happened to other dictators who failed to acquire these weapons — Saddam Hussein of Iraq and Muammer Gaddafi of Libya — and concluded that only nukes can guarantee his survival. This view is relatively reassuring because it suggests that Mr Kim is unlikely to use nuclear weapons first. But there are aspects of the North Korean leader’s behaviour that may not fit this relatively comforting picture. If deterrence is his only concern, why is Mr Kim apparently going out of his way to provoke the US, Japan, even China? This week, North Korea staged its largest-ever nuclear test. Last week, it sent a ballistic missile over Japan. It may be that these actions are necessary steps on the way to achieving the ultimate form of deterrence: a nuclear missile that could hit the US. But the rapid succession of nuclear provocations also makes it much more likely that the Americans will conclude that Mr Kim really is an irrational actor, the proverbial “madman with nukes”. That, in turn, makes it easier to make the case inside the White House for a pre-emptive strike.The risk that Mr Kim is miscalculating, by potentially provoking an American attack, is raised by the unpredictability of Mr Trump. He has vowed that North Korea will not be allowed to develop nuclear weapons that can threaten the US. He has also repeatedly suggested that he is prepared to stage a pre-emptive military strike, at one point threatening Mr Kim with “fire and fury”. But the US president’s efforts to use brinkmanship to force North Korea to back down are undermined by doubts about the credibility of his threats. Steve Bannon, formerly the president’s chief strategist, has stated that the US cannot attack North Korea because of the risk of massive retaliation against South Korea that could kill millions. Mr Trump’s reaction to the latest and most powerful North Korean nuclear test has increased the dangerous confusion about US policy. Rather than stressing American unity with South Korea, the president chose to criticise Seoul for its “appeasement” of Pyongyang. This, combined with the news that Mr Trump is actively considering scrapping the US-South Korea Free Trade Agreement, risks encouraging North Korea to believe its nuclear provocations are working, by splitting the alliance between Seoul and Washington.The president has also damaged US credibility, at a crucial moment, by tweeting that America is considering “stopping all trade with any country doing business with North Korea”. Read literally, this would involve ending trade between the US and China, the two largest economies in the world; an action that would throw the global economy into chaos. Mr Trump’s threat underlines his naivety about both trade and international relations. It also suggests the president remains buffeted by competing instincts, with his instinctive protectionism potentially overriding his desire to combat the North Korean nuclear threat. The confusing signals from the White House increase the dangers of miscalculation, not just in Pyongyang, but in Seoul, Beijing and Tokyo. With the North Korean threat mounting, the normal reaction for South Korea would be to move in lockstep with its American protector. But if the government of Moon Jae-in concludes the biggest danger is not that North Korea will attack but that Mr Trump will stage a pre-emptive strike, then the South’s incentives change. At that point, it might become rational to break publicly with Washington. The Chinese government faces a similarly complex set of calculations. Mr Trump has repeatedly tried to persuade Beijing to exert more economic pressure on North Korea, threatening that the US will take unilateral military action if China fails to force Mr Kim into line. China has sought to placate Mr Trump by toughening sanctions on Pyongyang. But the Chinese also have to consider how Mr Kim might react if he is forced into a corner. The risk that the North Korean leader will use nuclear weapons first will surely rise if he is faced with the prospect of the collapse of his own regime — and his own certain death. These risks would be difficult to manage even with rational, experienced leaders in power. But the key decision makers are a 71-year-old businessman with a volcanic temper and no relevant experience, and a 33-year-old dictator, surrounded by frightened sycophants.

LONDON – There is a psychological bias to believe that exceptional events eventually give way to a return to “normal times.” Many economic commentators now focus on prospects for “exit” from nearly a decade of ultra-loose monetary policy, with central banks reducing their balance sheets to “normal” levels and gradually raising interest rates. But we are far from a return to pre-crisis normality.

After years of falling global growth forecasts, 2017 has witnessed a significant uptick, and there is a good case for slight interest-rate increases. But the advanced economies still face too-low inflation and only moderate growth, and recovery will continue to rely on fiscal stimulus, underpinned if necessary by debt monetization.

Since 2007, per capita GDP in the eurozone, Japan, and the United States are up just 0.3%, 4.4%, and 5%, respectively. Part of the slowdown from pre-crisis norms of 1.5-2% annual growth may reflect supply-side factors; productivity growth may face structural headwinds.

But part of the problem is deficient nominal demand. Despite central banks’ massive stimulus efforts, nominal GDP from 2007-16 grew 2.8% per year in the US, 1.5% in the eurozone, and just 0.2% in Japan, making it impossible to achieve moderate growth plus annual inflation in line with 2% targets. US inflation has now undershot the Federal Reserve’s target for five years, and has trended down over the last five months.

Faced with this abnormality, some economists search for one-off factors, such as “free” minutes for US cell phones, that are temporarily depressing US inflation measures. But mobile-phone pricing in the US cannot explain why Japan’s core inflation is stuck around zero. Common long-term factors must explain this global phenomenon.

Labor-market developments are key, with wage growth remaining stubbornly low even as unemployment falls to “normal” pre-crisis levels. Japan is the most extreme case: with a shrinking labor force, minimal immigration, and a 2.8% unemployment rate, all standard models predict accelerating wage growth. But however much Prime Minister Shinzo Abe urges employers to give Japanese workers a raise, growth in compensation remains sluggish: in June, total wages grew just 0.4%. In the US, too, each new batch of monthly data indicates strong employment growth and surprisingly low wage growth.

Three factors may explain this trend. For 30 years, labor markets have become more flexible, with trade union power dramatically weakened. At the same time, globalization has exposed workers in the tradable sector to global wage competition.

But, most important, information technology delivers ever-expanding opportunities to automate all economic activities. In a fully flexible market labor with, as it were, a reserve army of robots, the potential for pervasive automation can depress real wage growth even with full employment.

Nominal demand, meanwhile, is still being held back by an overhang of unresolved debt.

Between 1950 and 2007, advanced economies’ private debt grew from 50% to 170% of GDP. Since 2008, debt has shifted from private to public sectors, with large fiscal deficits both an inevitable consequence of post-crisis recession and essential to maintain adequate demand. In addition, the global economy has been kept going by China’s enormous leverage increase, with the debt-to-GDP ratio up from around 140% in 2008 to 250% today.

Worldwide, total public and private debt has reached a record high, up from 180% of global GDP in 2007 to 220% in March 2017. As a result, interest rates cannot return to pre-crisis levels without risking a new recession.

Very low interest rates, meanwhile, generate asset-price increases, which benefit the already wealthy and reduce the income of less wealthy bank depositors, who in some circumstances might cut consumption more than deeply indebted borrowers increase it.

In this context, as Princeton University economist Christopher Sims argued in 2016, loose monetary policy cannot work through normal transmission channels, and is effective if, and only if, it facilitates fiscal expansion by keeping government borrowing costs low. Nominal GDP in the US has grown faster than in the eurozone since 2007, because the US ran deficits averaging 7.2% of GDP versus the eurozone’s 3.5%. Global growth today is crucially underpinned by China’s 3.7%-of-GDP fiscal deficit, up from 0.9% in 2014. Japan’s continued growth is assured only by large fiscal deficits stretching well into the 2020s; the Bank of Japan, which now holds government bonds equivalent to about 75% of GDP, will hold some of them forever, permanently monetizing accumulated fiscal debts.

The partial recovery this year thus reflects neither a return to pre-crisis normality nor the success of monetary policy alone. But, even if inflation rates remain below target, there is still a good case for some interest-rate increases. Because ever-looser monetary policy alone is decreasingly effective beyond some point, it can be partly reversed with little danger to nominal demand; and slightly higher interest rates would temper, even if only mildly, the inegalitarian impact of the current policy mix.

But the rate increases will and should be very small. I doubt that the US federal funds rate will exceed 2.5% in 2020, while Japanese and eurozone rates will rise only marginally, probably remaining well below 1%. Inflation is more likely to undershoot than to exceed 2% targets. Moderate growth at best will be insufficient to offset the impact of the lost decade of 2007-17.

The psychological bias to expect a return to “normality” will remain strong. But the drivers of post-crisis economic performance are so deep that no return to normality is likely any time soon.

This past weekend, when most Americans were celebrating their Labor Day holiday, North Korea was all business. On Sunday, the government in Pyongyang tested a hydrogen bomb, and though it’s never clear how these kinds of tests fare, the seismic activity and the reactions from the U.S. and Japan suggest it was a success. Pyongyang threw down the gantlet, and the message was clear: The United States will either have to accept North Korea as a nuclear power, or it will have to destroy North Korean nuclear facilities while it still can.

The test took most of the world – and, admittedly, us at GPF – by surprise. Our assessment of the situation wasn’t particularly rosy, but we didn’t think it would deteriorate so quickly. There had been about a month of relative calm before Pyongyang test-fired an intermediate-range ballistic missile, which flew over Japan before crashing harmlessly into the ocean. The test, in our estimation, reflected either North Korea’s dissatisfaction with the status of the negotiations underway or Kim Jong Un’s belief that Washington would not, in fact, attack. We thought the former was the more likely interpretation. It now appears that talks have collapsed altogether.

Kim called Washington’s bluff. Now Washington has to decide how it will respond. At stake is nothing less than the regional balance of power for decades to come.

An Unusual Back and Forth

This isn’t as hyperbolic as it sounds. The standoff between Pyongyang and Washington doesn’t exist in a vacuum. It directly implicates China, Japan and South Korea, all of which have different ideas for how the crisis would ideally unfold. What the events of the weekend did, more than anything else, was lay bare the conflicting imperatives of the U.S. and South Korea in particular. U.S. President Donald Trump accused South Korea of “appeasement.” South Korean President Moon Jae-in responded by saying Seoul would not tolerate North Korean nuclear advances while adding, diplomatically, that it would not abandon the idea of peaceful resolution.

This isn’t the usual back and forth of politicians. Embedded in the statements are each country’s measure of the crisis. South Korea must, above all, preserve Seoul. It cannot allow another Korean War to break out. (The first one claimed the lives of more than a million South Koreans.) The U.S. must, above all, prevent North Korea from acquiring a nuclear weapon that could reach the United States – something that might be possible only by an attack. The U.S. cannot achieve its imperative by force without denying South Korea its imperative. After all, North Korea’s artillery is aimed at Seoul, not San Francisco.

Our assessment dictates that U.S. interests outweigh South Korea – alliances aside, Washington would do right by itself by attacking North Korea and South Korea would join the fray. Sure, South Korea could buy some time by exhausting diplomatic options, but ultimately it would do what the U.S. wanted it to. But what if we’re wrong? What if a U.S. attack is predicated on South Korean involvement? What if the U.S. can’t attack if Seoul doesn’t participate?

If this is the case, then the U.S. is simply going to have to accept North Korea as a nuclear power. North Korea, having ensured its survival and the gamble that threatening Seoul would give it enough time to develop a nuclear weapon, would then be able to do what it has long wanted: to unify the peninsula under its rule. This wouldn’t be done forcefully or quickly – Pyongyang would instead use its newfound security to pressure the South to abandon its defense treaty with the U.S. and to get U.S. troops off the peninsula. As far-fetched as it might seem, it is a viable scenario if Pyongyang possesses a nuclear deterrent.

And it is a scenario that would profoundly change the balance of power in East Asia. It would undermine the credibility of U.S. security guarantees, forcing countries such as Japan to reconsider the terms of their alliance. If Japan cannot depend on the U.S., then it would likely redevelop offensive military capabilities of its own (something it is already considering doing).

China would benefit from this scenario. Beijing, of course, would welcome any weakening of the U.S. position in Asia. The government could point to the frailty of U.S. promises as a way to enhance its position, especially among U.S. allies like Indonesia and the Philippines. It also wants U.S. troops to leave South Korea. Still, it is not without risks. A unified Korean Peninsula could threaten Chinese security by itself, and it could be a longer-term threat if, when unified, it falls under the control of Seoul.

The Unthinkable

The situation today, then, is similar to what it was in 1950, during the outbreak of the Korean War. Almost 70 years ago, the U.S. fought on the peninsula not because the land was geographically or strategically important but because it needed to assure its allies it would help them in their time of need. There are a couple of important differences, however. North Korea is pursuing a weapons program, not South Korean territory, and there is no equivalent to the Soviet Union. (China is powerful, but it is no Soviet Union.)

The U.N. Security Council held an emergency meeting after North Korea’s latest nuclear test. KENA BETANCUR/AFP/Getty Images

This means the crisis might play out differently than expected. Unlike the invasion of an ally, a nuclear program is not something the U.S. public can as easily demand a response for. That there is no Soviet Union means the stakes are somewhat lower, since there is no greater enemy waiting in the wings. Rather than go to war, Washington may decide to double down on its maritime strategy of dominating the Pacific and supporting, with the full force of American power, the allies it needs in order to do that. South Korea’s unwillingness to go to war gives credence to this theory.

For all its plausibility, this scenario is still a ways off. The U.S. still has reason to attack North Korea – preventing the emergence of a threat to the territorial United States and maintaining the balance of power in East Asia with Washington on top. If North Korea acquires a weapon, then the U.S. can achieve neither of these imperatives. The United State therefore may yet override South Korea’s interests.

(We should also consider the possibility that the U.S. was bluffing from the start, hoping to cow North Korea into submission. Now that the bluff has failed, the U.S. may be preparing for an attack as a matter of course. If so, we shouldn’t read too much into the time it took the U.S. to retaliate, if it retaliates, to the North Korean nuclear test.)

In geopolitics, forces such as economic needs and political survival compel the behavior of nations. Such forces explain why South Korea is dragging its feet and why, despite all the directions in which the U.S. is pulled, our model suggested war was the most likely outcome. But the events of the past few days have forced us to think of realities that were unthinkable a mere few weeks ago.

Recently, Doug Casey commented, in an essay, on the senselessness of giving to organized charities. I take a similar view. So, are we both heartless, having no concern for the well-being of others? Not at all.Personal generosity is a laudable quality, but giving to a large organized charity is just plain foolish. At best, three-quarters of your donation will be gobbled up by the administration of the charity. If you genuinely wish to be of value to others, your generosity would be more effective on a local level, where you give directly to those who will benefit from it, and you’re more certain of the outcome. The larger the charity organization, the greater the certainty that much, if not all, of your donation will fail to reach those you hoped would benefit.Similarly, the concept of community is that we surround ourselves with others, as this provides us with a better life. The concept originated before mankind even existed—lions hunting in a pride, monkeys shrieking at the approach of a predator, etc. Humans originally formed tribes for similar reasons. Then, the idea of community expanded as some individuals proved to be better at different tasks. One might have been a more proficient hunter, whilst another constructed a better shelter or made better tolos.This, in turn, developed into the idea of a fixed community, with some buildings being used as dwellings and others as places of business. The more people, the greater the diversity of skills and the greater the choice of whom to seek out, to fulfill tasks.Hence, we develop the assumption that “bigger is better.” But, at some point, as a community grows larger, we find that depersonalisation occurs. We find that we have little personal relationship with the folks on the other side of town and our willingness to help them diminishes, as we come to realise that the favour is unlikely to be returned.The effectiveness of “community” is based on the level of voluntary give-and-take.This concept is reinforced in a situation where we live our entire lives in the same location, increasing the likelihood that we’ll be surrounded by family members, including in-laws and friends and associates with whom we develop symbiotic relationships over a period of years. The longer those relationships exist, the less immediacy we require on a return within the give-and-take.The logical conclusion of “bigger is better” is city life, in which people come and go frequently and each individual becomes more solitary in his view as to what type of behaviour is most useful to him. The larger the population, the more the sense of “community” dries up.Although a high-population community can function effectively, it tends to come apart in times of strife. If a riot occurs, your car is more likely to be senselessly burned by someone you don’t know and have never harmed. Likewise, during a food crisis, your neighbour is more likely to shoot you to gain the loaf of bread you’re taking home. So, somewhere between city living and “going it alone,” there’s an ideal size for a community, where neighbours are likely to help one another as needed, because they recognise the likelihood of a return on their “social investment.”In the US, the Amish have arguably been more successful at this than anyone else. Whenever a community exceeds forty or so families, they begin the formation of another church district (community). This assures that each person benefits personally from the assistance of the others, even to the extent that the entire community gets together to raise a barn for a young married couple, without charging them. (At some point in everyone’s life, the favour has either been returned, or will be.)The English country village has my personal endorsement as the most civilised form of community man has ever created, as it has one of every service that’s needed, but little more. But, although I’m British, I choose not to live in an English village, because they all fall under the aegis of a controlling and impersonal national government, within which I have no meaningful voice. Worse, at least for the present, that national government falls under the control of an even more dictatorial uber-government—the EU.For a community to have an effective government, it would never grow beyond the level of the town hall—a meeting place in which each resident’s voice has a similar weight. (Even then, it would stand the risk of being more a democracy than a republic.)But, as soon as a community grows beyond that size, the individual has an ever-decreasing say in managing his own affairs. In addition, he faces decreasing interplay between himself and his fellow citizens, leaving him ever more greatly exposed in those times when mutual respect and assistance may be essential.Today, we’re approaching a period that will include the greatest level of social, economic and political change that we’ll ever face in our lifetimes. Whilst it will impact us all, the primary objective should be to minimize its impact on us so that we can come out the other side of it as undamaged as possible. (If we prepare ourselves well enough, we may even exit this period in a better position than we now have.)In such a time, it would be wise to have the option to live in a small community, where we’re known and our involvement is respected. As conditions become more difficult, our voluntary participation in the survival and/or betterment of the community would be the glue that keeps its function ongoing. (And, here, I cannot stress the word, “voluntary” strongly enough. A community that has laws and regulations that demand contribution is a poor choice, regardless of its size.) For someone living in the UK, the odds of surviving well in, say, Winchcombe (population 4,500) are far better than in Manchester, a large, entitlement-conscious mill town of 2.6 million.In the US, quiet, largely self-sufficient Jackson County, Florida (population 48,600) is a much better bet than Miami-Dade (population 2.7 million), a location that has considerable strife in the best of times and is only likely to worsen in a crisis.But even a community that’s known to be peaceable may come under the control of a larger government. Central governments routinely regard small communities as being milk cows in the best of times and expendable in the worst of times.In order to minimise such risk, there are two options. The first is to find a small community in a country where the central government, however large it may be, is ineffectual—a community that largely ignores edicts delivered from the Capitol.The second choice is to find a small country—a country too small to have a military and that has an appropriately small central government where the individual voice is easily heard.Lastly, it’s important to note that, in the event of a global crisis, it will do little good to arrive in such a community after the crisis has already begun. This earns you a reputation as a refugee, running from a problem elsewhere.Instead, it’s necessary to put down roots in such a community, even if it’s only part of each year; to gain acceptance during better times and to develop a genuine interplay between yourself and your community.In choosing a community, size matters—especially during a crisis. A viable size dictates the opportunity of a good life during difficult times. The achievement of that good life is determined by how well you become a part of that community.

If you know the other and know yourself, you need not fear the result of a hundred battles.

Sun Tzu

We are travelers on a cosmic journey, stardust, swirling and dancing in the eddies and whirlpools of infinity. Life is eternal. We have stopped for a moment to encounter each other, to meet, to love, to share.This is a precious moment. It is a little parenthesis in eternity.